2002 (8) TMI 55

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....U J.-The question referred to us at the instance of the assessee arises out of the order of the Tribunal, which allowed the appeal of the Revenue and restored the order of the Assessing Officer who had held that in computing the capital base for the purpose of surtax the credit balance in the profit and loss account is to be deducted, and that such balance cannot be treated as reserve. The assessm....

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....n of the Supreme Court in the case of Vazir Sultan Tobacco Co. Ltd. v. CIT [1981] 132 ITR 559 and observed that credit balance which is not specifically allocated and which is not a provision must be held to be a reserve. With great respect, we are unable to concur with that view. That view is also not consistent with the law laid down by the Supreme Court in the case of National Rayon Corporat....

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....rt held at page 773 of the reports thus: "The basic principle is that any amount retained by way of providing for a known liability will not be 'reserve'. Explanation to rule 1 of the Second Schedule to the Surtax Act takes this principle to its logical conclusion by providing that even a sinking fund, which has to be shown as a reserve in the prescribed form of balance-sheet, will not be treat....